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however, it does not mean that submitted documents remain without examina tion, and 2. A procedure envisaging a thorough examination of the organizations docu ments and a written approval of the respective tax authority. For instance, the taxpayers, whose documents are already submitted to the tax authorities (in cluding the cases where requested changes in tax accounting methods concern the periods subject to tax inspection), as well as the taxpayers, who have al ready made a change in the same method of accounting (including under the automatic accounting method change procedures), or applied to change the same method of accounting without effecting the change within the last tax years54, are not eligible for the automatic accounting method change.

The taxpayers not eligible for the automatic accounting method change may be refused the approval of change in accounting method in the case the tax au thorities decide that the currently used method clearly reflects received income and after weighing the need for consistency in reporting against the request for change will find the change as unfeasible55.

As concerns the imposition of restrictions on the possibility to change the methods (means) of tax accounting used by the organization, it is necessary to dis tinguish between changes in accounting policy for taxation purposes and its ex pansion.

The RF Tax Code (article 313) stipulates that the taxpayer should determine and reflect in accounting policy for taxation purposes the principles and proce dures of accounting with respect to new types of activities in the case the organiza See http://www.irs.gov/pub/irs pdf/f3115.pdf.

IRS Publication 538. Accounting Periods and Methods. P. 29.

See ibid.

See ibid. P. 28.

RUSSIAN ECONOMY IN trends and outlooks tions has engaged in such activities. At the same time, in the framework of RA 1/the approval of an accounting method with respect to the facts of economic activi ties different in nature from the facts taking place earlier or originating for the first time in the organizations activities is not deemed as a change in accounting policy (see item 16).

Therefore, changes in accounting policy differs from its expansion; however, no clear boundary is set by either the RF Tax Code, or RA 1/98, since in the frame work of the latter document it remains unclear what is the exact difference between changes in types of activities of the organization and the new types of activities, if there is any at all.

In the situation, where one or another provision in the accounting policy for taxation purposes pursued by the organization is lacking, while the organization uses it in its tax accounting practices becomes a cause for court proceedings or a tax inspection, whereas the tax legislation does not contain any requirement for re flection of this provision exactly in the accounting policy, the taxpayer should be granted the right to supplement the accounting policy with the respective provision in the middle of a tax period (after the completion of inspection). This opportunity may be granted in the case the taxpayer has found out that the document lacks the necessary provisions (including those required by the tax legislation).

At the same time, it should be noted that the document should be supple mented exactly with the methods already used by the taxpayer in practice in order to prevent a change in the method in the middle of the tax period, since the change in accounting methods transgressing the limits of periods may result in a (unin tended or intended) distortion of tax liabilities due to nontransparent transitional provisions.

At present, the RF Tax Code fails to provide an answer to the question if it is possible to introduce additions to accounting policy for taxation purposes in the middle of a tax period, for instance, in the case that the organization engages in a new type of activity not in the beginning of the year; it should be noted that the ab sence of respective provisions in the document setting the accounting policy of the organization means that it infringes on the stipulations contained in article 313 of the RF Tax Code. The RF Tax Code also fails to provide an answer to the question from what exact time the organization has to comply with this stipulation, in other words, what time it has to develop the provisions of its accounting policy for taxa tion purposes answering the respective new types of activities.

Besides, the tax legislation currently in force does not settle the issue con cerning the informing of the tax authorities about the accounting policy for taxation purposes adopted by the organization and changes therein, what, similarly to the lack of transparent procedures governing the changes in the methods (means) of tax accounting, creates additional difficulties with respect to tax administration.

The RF Tax Code stipulates that the taxpayer should provide tax authorities and tax officers (in the cases envisaged by the RF Tax Code) with the documents necessary for the calculation and payment of taxes (see sub item 5, item 1, article 23 of the RF Tax Code). For instance, among the documents required for the calcu Annexs lation and payment of taxes there may be named tax returns, as well as the organi zations accounting policy for taxation purposes, since the use of certain methods (means) of tax accounting affects the amount of tax liabilities in a given period.

At the same time, the fact that the taxpayer should submit tax returns is re flected in the RF Tax Code (see item 5 of article 174 of the RF Tax Code as con cerns the value added tax, item 1 of article 289 as concerns the corporate profit tax, and so on), whereas there is no direct indication that the taxpayer should sub mit the document (instructions) on accounting policy for taxation purposes to the tax authorities.

Perhaps, legislators proceeded from the assumption that accounting policy for taxation purposes must be among the documents to be submitted by the tax payer to the tax authorities in accordance with the stipulations contained in sub item 5 of item 1 of article 23 of the RF Tax Code. However, the clause in the cases envisaged by this Code contained in this provision is an evidence that this stipula tion should be concretized by other provisions of the RF Tax Code, whereas no other provision of the Code sets such a stipulation.

Therefore, formally the taxpayer is not obliged to inform the tax authorities about the accounting policy for taxation purposes adopted by the taxpayer.

As concerns foreign practices, as a rule, the data on tax accounting methods used by the organization are integrated in the forms of tax returns56, what permits to settle the issue of informing of the tax authorities.

The forms of tax returns used in Russia, in particular those regarding the value added tax57 and the tax on corporate profits58 contain practically no information on the accounting policies for taxation purposes applied by the taxpayers submitting these forms. At the same time, it should be noted that the forms of tax returns are filled in under different procedures depending on the methods (means) of tax ac counting adopted by the reporting organizations59.

Besides, certain data pertaining to the accounting policy for taxation pur poses are presented in the framework of tax returns submitted by foreign organiza tions reporting on their profit tax60. In particular, there is indicated the information on the adopted methods of recognition of earnings, evaluation of reserves, as sessment of purchased goods, and amortization.

It should be noted that the issue of informing of the tax authorities about changes in the organizations accounting policy for taxation purposes can not be in all cases settled with the use of tax returns forms.

See, for instance, the forms of US corporation income tax returns (http://www.irs.gov/pub/irs pdf/f1120.pdf) and depreciation and amortization declarations (http://www.irs.gov/pub/irs pdf/f4562.pdf).

See attachments to Order of the RF Finance Ministry No. 163n of December 28, 2005.

See Attachment No. 1 to Order of the RF Finance Ministry No. 24n of February 7, 2006.

See, for instance, the Procedures governing the filling in of tax returns concerning the corporate profit tax (Attachment No. 2 to Order of the RF Finance Ministry No. 24n of February 7, 2006.

See the form of the tax return with respect to the profit tax on foreign companies (as approved by Order of the RF Tax Ministry No. BG 3 23/1 of January 5, 2004).

RUSSIAN ECONOMY IN trends and outlooks At present, the RF Tax Code contains a number of provisions envisaging that taxpayers should develop methods of tax accounting with respect to certain items on their own, for instance, this list includes some direct and indirect expenditures, the procedures governing evaluation of work in progress, the methods of separate accounting for sales operations subject and not subject to the value added tax, as well as the operations subject to the value added tax at zero rate. It is impossible not only to unify these methods with the view to reduce possibilities of tax planning, but also to formalize them in order to provide the taxpayer with the choice of a lim ited number of options.

In practice there were observed situations, where the tax authorities rejected tax returns if organizations failed to submit their documents concerning accounting policies for taxation purposes61. This requirement may result both from the fact that tax authorities need respective information, and the ingress of financial accounting provisions into the sphere of tax accounting.

In accordance with item 15 of the Regulations on accounting Accounting pol icy of organizations (RA 1/98), the important methods of accounting should be disclosed in the explanatory notes being a part of financial accounting statement for the reporting year. It should be noted that financial accounting documents should be submitted to the tax authorities on the compulsory basis similarly to the tax accounting statements; however, in contradistinction to the latter, the former should be supplemented by the disclosure of information on the accounting policy adopted by the respective organization.

Indeed, tax authorities need information on the methods (means) of tax ac counting for events and operations used by the taxpayer in order to proceed tax re turns; without such information it would be difficult to property check the contents of tax returns. Naturally, in accordance with article 93 of the RF Tax Code the tax authorities have the right to demand the taxpayer to present necessary documents in the course of a tax inspection. At the same time, this unnecessary and compli cated procedure (the documents should be provided within 5 days) may be avoided, if tax returns were supplemented with the data on the accounting policy for taxation purposes.

The problem of informing of the tax authorities is encountered also in the case organization changes its policy for taxation purposes; both in the case this change is initiated by the taxpayer, and in the case of changes in the legislation on taxes and levies.

The RF Tax Code does not envisage any mechanism for informing the tax au thorities about changes introduced in accounting policies. This issue is partially settled in the case the tax authorities receive information on accounting policy for taxation purposes on a regular basis, for instance, by rejecting tax returns not sup plemented with the respective document. However, even in this case the tax au thorities will have to do extra work comparing the previous and new versions of the document (instruction) on the organizations accounting policy for taxation pur poses.

See http://www.klerk.ru/articles/57127.

Annexs This problem may be avoided in the case the forms of tax returns envisage certain fields for the data pertaining to the changes in accounting policy (the intro duction of such fields will make more easy to obtain information on changes in the methods (means) of tax accounting if alternative variants are listed in the RF Tax Code), or there are introduced special forms informing the tax authorities about the changes in accounting methods developed by taxpayers on their own in accor dance with the legislation (for instance, as concerns changes in the procedure governing the determination of amounts of the value added tax with respect to items subject to the value added tax at the zero rate)62.

As concerns changes in accounting policy for taxation purposes resulting from changes in the legislation on taxes and levies, it would be logical if the proce dures governing the informing of the tax authorities in each case were also estab lished in a document introducing changes and additions to the legislation.

Conclusions The introduction of the definition of the accounting policy for taxation pur poses in the RF Tax Code creates prerequisites for the independency of the legis lative framework pertaining to the regulation of tax accounting and facilitates the development of a conceptual framework of the Russian tax legislation.

Besides, the fact that the accounting policy was defined in the tax legislation may result in the beginning of the so necessary process of systematization of re quirements concerning accounting policy; this process may facilitate the settle ment of the issues pertaining to the substance and status of the accounting policy for taxation purposes, as well as the introduction of changes in and additions to this policy and provision of the respective information to the tax authorities, which re main at present unsettled in the framework of the legislation currently in force.

The lack of system in the sphere of accounting policy for taxation purposes results in higher expenses borne by taxpayers with respect to compliance with the tax legislation and, accordingly, in a lower degree of compliance therewith and greater difficulties faced by the tax authorities as concerns their work.

It appears that it is necessary to systematize requirements pertaining to or ganizations accounting policies for taxation purposes in a single document.

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